The Debt Limit Game of Chicken

"Bruce Bartlett:

How Will the Debt Limit “Game of Chicken” End?, by Bruce Bartlett: It appears that Republicans are determined to hold the nation’s credit rating hostage to their demand that federal spending be slashed before allowing the debt limit to rise. Rep. Paul Ryan, chairman of the House Budget Committee, is already warning Wall Street that a “technical default” is likely; that is, some bondholders may not get their interest payments precisely on schedule. 

The Treasury continues to warn that a financial apocalypse will occur if the debt limit isn’t raised soon, but Republicans pooh-pooh such concerns as political grandstanding. They maintain that as long as the Treasury has sufficient cash flow to pay interest on the debt, then Treasury can simply put off paying its other bills for a while and default will be avoided. They point to a 1985 opinion by the U.S. General Accounting Office (now known as the Government Accountability Office), which says that the Treasury is not obligated to pay its bills in the order in which they are received and can prioritize payments. ...

Undoubtedly, there are bills that can be put off for a few weeks or longer. ... The problem is that we are getting close to the end of the fiscal year, which ends on Sept. 30. Since funds are normally apportioned on a quarterly basis, once we are in the fourth quarter of a fiscal year, OMB’s flexibility is greatly reduced..."

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